Refinancing

My financial status remains relatively strong.

Looking an my change in net worth through 2008, I've seen a net gain of $38191.30. This does not account for any change in the value of my house, but does account for changes in my investments, including my 401(k) account, over that period - because that's tracked continously, and I never know what my house is worth on any given day - however I do know that its value has dropped dramatically over the past year, by somewhere between 20 and 30 percent.

What I notice is that my peak net worth was in August, and there was a trough, which bottomed out in October. At this very moment, my net worth is $30 more than it was at the peak last August. So, in effect, I had a setback of about 6 months, which came in the form of investment related losses. My net worth, excluding the equity I have in my house, is currently at its highest ever.

Last summer I strongly considered "trading up". I figured I might take advantage of selling my house and moving to a more desirable neighborhood. I actually went through the entire process up to the point of having my house listed on MLS. I bought a new oven (I call it my flat top) and a flat screen 46" TV and some new faucets. I painted just about every room, and packed away all my junk, so the house would look as clean and tidy as possible. Then I decided to back out.

The reason: houses seemed to be dropping in value more precipitously in my neighborhood than they were in the neighborhoods I considered moving too, which were already astronomically expensive. There was no way for me to justify taking such a "leap of faith" as the real estate agent referred to it, during times that were becoming more and more uncertain. So, I decided to stay put.

Then in late November I started receiving emails from a mortgage broker whom I'd contacted earlier, when I wanted to move. He told me about how rates had dropped to historically low levels. Not wanting to be bothered, I asked him what rate I could get. He told me 4.75%, and so I told him that if he could promise me 4.25% - with reasonable closing costs and no points, over the holidays, to give me a call - otherwise I'd get back with him in January or Feburary. I was pretty sure that would be impossible, but it gave me something to think about: how I could potentially benefit by refinancing.

I'll skip all the boring details. On Friday February 6th, I closed on my refinancing with my credit union. I voluntarily paid out an extra $50,000 against my mortgage. My interest rate on a 30 year fixed loan is now 4.625%, and my monthly payment is $1250 less.

The closing costs were $2600, altogether. So, in a couple months, the amount I save on my mortgage payment will just about pay for that. True, I was out the $50,000 up front. But that was a compromise on my part. See, I have been paying an extra $20,000 per year against the principal, for the past two or three years. I figured I'd just pay the $50k, get the nice low payments set in stone for myself, and then not pay extra for a couple years, while building back up that extra payment. Also, I have a hefty amount of cash savings that has just been sitting there collecting dust, since I sold the bulk of my investments in late 2007.

Here's what's funny: my total March 1 payment will be exactly $300 less than what I would have paid in interest, alone, if I had not refinanced.

I've looked at it from many different angles, and one day I'll look back at this as one of the smartest financial decisions I've ever made.